Keeping Volatility In Check When Trading Commodities

Volatility in the bull markets is more or less a common thing yet that does not mean trading stalls if anything the bull markets are one of the vibrant trading arenas in the world. However the importance of keeping volatility in check has been well documented and in fact, a good trading strategy particularly in commodities must be able to deal with changes in the price and trends of commodities markets. High volatility means that there is a potential chance of huge price swings and in any case, these swings can either be positive or negative. However it is important to be on the safe side and the golden rule in commodities trading will always be to stop losses even if you do not make profit. Now in this regard, handling volatility means assuming that indeed the price swings will be negative and therefore adjusting your trading strategy to deal with the situation. The following tips will help you keep volatility in check

Price and trend charts

The price and trends chart are the pictorial representation of how the trend in price has been in the market for various commodities, now the price chart do not actually tell you what will happen but they just give you an idea of how the prices are bound to go. In many cases price swings are caused by many factors all of which are both economic and political and with that point in mind, the change in price can really disregard the trend if there has been a political or economic decisions touching the commodity. As a good trader you have to keep your eyes and ears open, assessing price trends goes beyond the chart but all the same, you can be sure that they will give some important ideas on how prices will be.

Relative stability of the prices in the last trading days

The relative stability of the commodity in the last trading days should also be a good yard stick to measure price swings. Stable commodities are highly unlikely to change that trend overnight and while in isolated cases they have, there is no doubt that in the end what maters is a good call when such changes happen. Stability of price means that the change is marginal either rising or falling but again price stability of a commodity can be affected by external factors that you may have no control over and in such a situation, it is important that you have good idea on how to mitigate the swings.

The last low volatility periods

Markets keep changing from low to high volatility within a very short time and if at all you can muster how the movement has been, you can be able to predict high volatility periods in your trading. While it is highly advisable to trade in low volatile markets where there is price stability, in case of a situation where markets have remained highly volatile for sometime you need to find a risk mitigation strategy that will conform to the climate.

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